Finland’s pulp and paper manufacturer UPM's (OMX: UPM1V) Fray Bentos unit in Uruguay proved overwhelmingly the most profitable, helping to boost an otherwise first quarter profit of the year which was described as “unsatisfactory” by CEO Jussi Pesonen.
“Profit margin remains fairly low, the result is unsatisfactory,” said UPM-Kymmene Oyj (OMX: UPM1V) CEO Jussi Pesonen in reference to then January-March turnover of EUR 2 billion, yielding EUR 116 million in operating profit. “Overwhelmingly, the most profitable unit of UPM was the Fray Bentos pulp mill in Uruguay”, added Pesonen. The plant had been owned jointly by UPM and Metsäliitto, but at the end of the year Metsäliitto had to give up its share.
The timing of the transaction was very good from UPM's point of view. “There is a shortage of pulp, and its price is nearing record levels. One factor further boosting demand for pulp was the earthquake in Chile, which put mills in that country out of production”, said the company’s report.
Newsprint and magazine paper, on the other hand, did poorly. Producers in the sector started a price war late last year; the industry has been suffering from excess capacity for a long time. “If a fifth of demand disappears, it will affect the pricing of the products”, Pesonen said. He denies that UPM is trying to steal customers from its competitors, and notes that the company shut down its newsprint mill in Kajaani, which is not something that a company trying to take over market shares would do. “Our goal was to improve the margin”, Pesonen said.
In newsprint and magazine paper, sellers and buyers have long-term contracts which mean that low prices affect the result of an entire year. At the same time, the costs of acquiring both recycled and fresh fibre are on the rise. Pesonen says that the company has ways of improving the result. “Cost discipline is being upgraded. Production efficiency is to be improved, and we will examine the markets on which we operate.”
Finally, he said the company expects profits for the whole year to show a considerable improvement over 2009.